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  • EUR/USD retreats from 10-day highs at 1.1860 to 1.1800 area.
  • The euro rallies further with stock markets surging.
  • EUR/USD is likely to test resistance within the 1.15/1.20 range – Westpac.

 

The euro is pulling back against the US dollar during the North American session, returning to the 1.1800 area after having peaked at 1.1860, ten-day highs amid broad-based dollar weakness.

The US dollar dives as risk appetite soars

The advantage of Joe Biden against the incumbent Donald Trump in the US presidential elections combined with the chances that the Republicans remain in control on the Senate to block any Democrat attempt to introduce tighter regulations or raise taxes to Corporate America has triggered a risk rally in Wall Street that has hit the safe-haven US dollar.

This favourable scenario has driven the euro higher for the third consecutive day, extending its recovery from week lows at 1.1600 to the upper range of 1.1800 before correcting lower on the US trading hours with the market awaiting the outcome of the two-day Federal Reserve’s monetary policy meeting.

With the US still awaiting the final result of the presidential election, the Fed is widely expected to adopt a wait-and-see stance. The Bank will, most likely, keep its benchmark interest rate unchanged at the current 0.25% and maintain its commitment to support the economic recovery from the impact of the COVID-19 crisis.

EUR/USD likely to test resistance of the 1.15-1.20 range – Westpac

On a wider-term perspective, the Westpac FX Analysis team sees the risk skewing to the upside, as the outcome of the US elections clarifies, with the pair ready to test the 1.20 level: “The broad implementation of tighter restrictions and lockdowns across the eurozone is forcing further and broader support schemes on a national basis which will see further blowouts of fiscal deficits (…) A risk positive outcome to the tight US election and confirmation of EC Recovery Fund implementation should see EUR/USD test resistance within its recent 1.15-1.20 range.”

Technical levels to watch